2007: The Year of the Digital Niche Acquisition
DeSilva + Phillips M&A report highlights the dramatic rise of digital deals.
In M&A terms, 2007 had several market-defining moments. A strong start in both volume and value yielded to a fourth-quarter stall and the strategics laid the groundwork for their likely 2008 M&A comeback, according to a recent report by DeSilva + Phillips. But, according to the report, 2007 "was, above all, the year of the digital niche acquisition."
According to the report, 2007 deal value across the markets the firm tracks was $9.6 billion, which put it at less than half of 2006, somewhat of a surprise to the firm, which predicted growth would continue from the blockbuster year of 2006. Deal volume, however, remained strong, slipping only slightly to 135 transactions in 2007.
Fourth Quarter Fallout
"What the yearly numbers don't show is the dramatic loss of momentum in the fourth quarter of 2007," notes the report. Through the first three quarters, deals were pacing 13 percent ahead of 2006, with 108 compared to 96 for the same period in 2006. But, as we all know, the credit crunch had hit and the deal pace all but slowed to a trickle. Had we avoided the subprime fiasco, "there would have been twice that number of deals completed in the last four months of 2007," says DeSilva + Phillips.
"The credit crunch may also have affected the eternal tug-of-war between the strategic and financial buyers," says the report. Indeed, within the top 15 deals as measured by DeSilva + Phillips, five belonged to strategic buyers, the same as 2006. However, points out the report, those five deals represented 62 percent of the value of the list. Going forward, D+P predicts that as long as the credit crunch remains a factor, the strategics, which relay on less leverage than the financials, will have a "comparative advantage over financial buyers."
Interestingly, in its top 15 deals, DeSilva + Phillips has 10 of the 15 represented by consumer properties, a majority not seen since 2002. The dollar value of those 10 deals represents over 72 percent of the $8.06 billion total.
The Year of the Digital Deal
"The year 2007 was the biggest year by far for watching traditional media using the acquisition tool to acquire digital properties," says the report. Indeed, Penthouse's $500 million acquisition of Various Inc. made the firm's Top 15 deals list. The report also notes that Meredith, Hearst, Hachette, Time Inc., National Geographic Ventures, Wicks Business, Forbes Media, PennWell, MediMedia, WoltersKluwer, IDG and Ziff Davis Enterprises all made digital deals last year.
DeSilva + Phillips characterized most of the deals as adding a niche focus to a big company, not a complete platform rollout. This means that companies are largely interested in improving and building on something they already have, whether features, technology, or talent, for example. It's a significant shift from the giant, transformational acquisitions traditional publishers were making in the early part of the decade.